Global Market Sets Crude Oil Price Amid Volatility
When Americans fill up their cars or book flights, they're affected by the global price of crude oil. The recent disruption in the Strait of Hormuz has caused near-unprecedented volatility in energy markets, making it a good time to understand how the price is determined.
Crude oil is a global commodity produced by thousands of companies worldwide and sold into an interconnected market. No single company or government controls enough supply to set the global price. Oil companies are 'price takers,' selling at the market price rather than setting it themselves.
The price of crude oil is determined by the balance between supply and demand in real-time on global exchanges like the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE). When demand outpaces supply, prices generally rise. When supply exceeds demand, prices fall.